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It’s important that all Malaysian companies comply with the approved accounting standards and have true and fair financial statements to represent the financial status of the company.
In this introduction to accounting in Malaysia, we will take a look at the accounting standards as well as the accounting compliance requirements companies need to meet.
Accounting standards in Malaysia
Malaysian companies are required to keep statutory financial statements under the accounting standards issued by the Malaysian Accounting Standards Board (MASB).
Foreign companies listed on the stock exchange should prepare financial statements in accordance with the International Financial Reporting Standards (IFRSs).
The approved accounting standards for private entities is the Malaysian Private Entities Reporting Standards (MPERS), and the Malaysian Financial Reporting Standards (MFRSs) for entities that are not private entities.
Companies must prepare their financial statements according to the relevant accounting standards.
Determining the financial year-end for Malaysia companies
According to the Companies Act 2016, there is not a specified date of the financial year-end for companies. The date is entirely up to the decision of the company.
Every company is required to prepare financial statements for not more than 18 months from the date of incorporation and submit the financial statements to the Companies Commission of Malaysia (SSM) and the Inland Revenue Board of Malaysia.
Most companies choose their financial year-end as the last day of the calendar year, 31 December, or on the last day of any quarter, 31 March, 30 June or 30 September.
Essential accounting & tax compliance requirements
Every company in Malaysia is required to maintain proper records and accounts to comply with the regulations. The financial reports are important for the accounting process and business references.
Some of the financial records include invoices, serially numbered receipts, income records, purchase and business expense records and accounting and statement records.
The benefits of bookkeeping include:
- Clear financial foresight and better understanding of the company’s overall financial health
- Understanding of business performance
- Fast discovery of possible financial mismanagements
- Track your company’s expenses
2. Annual financial statements
According to section 248 of the Companies Act 2016, the company directors shall prepare the financial statements within 18 months from the date of the company’s incorporation and subsequently within six months of its financial year-end.
The financial statements must be audited before being sent to every member of the company, every person who is entitled to receive the notice of general meetings, every auditor of the company and every debenture holder of the company.
For public companies, the financial statements should be sent to every member previously stated and presented at the annual general meeting. If a director violates this requirement, the director could be fined not more than RM 500,000 or imprisonment of not exceeding one year, or both.
What is included in financial statements?
Under section 249, the annual financial statements shall give a true and fair view of the financial position and performance of the company and all its subsidiaries. The financial statements shall include:
- The director’s remuneration
- The director’s retirement benefits
- Compensation to directors for loss of office
- Loans, quasi-loans and other dealings in favour of directors
- The total amount paid to or received by the auditors as remuneration for their services as directors.
Financial statements and reports of private companies must be filed with the SSM through XBRL format within 30 days the financial statements and reports are distributed to the company members.
3. Annual audit
All Malaysia companies need to be audited unless they fall into the category of audit exemption. The qualifying criteria for audit exemption are that the private company has to be:
- A dormant company
- A zero-revenue company
- A threshold-qualified company
A company is dormant if the company does not carry on business and has no accounting transaction in the financial year.
A zero-revenue company is qualified for audit exemption if:
- It does not receive any revenue during the present financial year
- Did not receive revenue in the past two financial years
- The total assets in the current statement of financial position does not exceed RM 300,000
- The total assets in the statement of financial position of the past two financial years do not exceed RM 300,000
According to the MASB, the revenue does not include credit entries for reversal of accounting entries arising from earlier entries, accounting entries related to taxation, a reversal of provisions made earlier and gain on recognition of property plant, equipment and investment property in the statement of comprehensive income.
Three requirements must be met for the company to be eligible for audit exemption:
- Have an annual revenue of RM 100,000 or less during the financial year and the past two years
- The total assets in the current statement of financial position of RM 300,000 or less and in the past two financial years
- Five employees or less at the end of the current financial year and past two financial years.
Companies in Malaysia that are registered as a sole proprietor or partnership are not required by the Malaysian law to have its financial statements audited annually.
Many countries, including Malaysia, have adopted eXtensible Business Reporting Language (XBRL) to process the financial data as it reduces costs, is efficient and accurate.
The Malaysian Business Reporting System (MBRS) is a platform based on the XBRL used to submit both the non-financial and financial information by registered companies in Malaysia.
The financial components include:
- Financial statements and reports (FS)
- Annual return (AR)
- Exemption applications related to the financial statements and reports and annual return applications
- Statement of comprehensive income or income statement
- Balance sheets
- Statement of change in equity
- Cash flow statement
The requirements listed above should be met and completed correctly to comply with the rules and regulations of accounting in Malaysia and to prevent any penalties.
To reduce the hassle of doing accounting by yourself, we recommend engaging with Acclime’s accounting services and we ensure you that we will stay compliant with the accounting compliances.
Acclime is Asia’s premier tech-enabled professional services firm. We provide formation, accounting, tax, HR and advisory services, focusing on delivering high-quality outsourcing and consulting services to our local and international clients in Malaysia and beyond.